Wallace (Wally) Forbes, CFA, was President of the Forbes Investors Advisory Institute (FIAI) from 1993 through 2014, the division of Forbes Media that publishes the Forbes Special Situation Survey, Forbes Investor and is responsible for the Forbes participation in the Forbes/CFA Institute Investment Course published by Wiley. He hosts an interview program with leading money managers that appears on the Investing section. Mr. Forbes, the youngest son of B. C. Forbes, founder of Forbes Magazine, served as Vice President and Director of Forbes, and President of Forbes Investors Advisory Institute, from 1964 to 1969. After leaving the company, he served as president and CEO of Standard Research Consultants, formerly a subsidiary of Standard and Poor’s Corporation. He subsequently was a founder and partner-in-charge of Benchmark Valuation Consultants, which merged with KPMG Peat Marwick in 1987. Both firms specialized in the business valuation field. He has also served as a director of both public and private companies and of educational and other non-profit organizations. He rejoined Forbes in 1996, once again as President of FIAI. He has authored or co-authored articles on the valuation of business enterprises and related subjects that have appeared in various business and professional publications, including Harvard Business Review, Business Horizons, Monthly Digest of Tax Articles, Management World, Family Advocate, YPO Enterprise, Chief Executive, and The Business Valuation Handbook. After graduating in 1949 from Princeton University with a degree in civil engineering, he served for five years in the U.S. Navy Civil Engineer Corps and was assigned to Seabee battalions (Navy construction battalions) in various overseas locations. After leaving the Navy, Mr. Forbes attended the Harvard Business School, and, upon graduation, was appointed a research associate in investment management and a member of the faculty. Mr. Forbes is a member of the New York Society of Security Analysts and holds the Chartered Financial Analyst designation.

From Apple To Teva, Some Attractive Valuations In A Tough Investing Environment

However, their name brand product pipeline, generic near-term opportunities, their great exposure to emerging markets, and a general positive demographic trend for the health care industry should support solid growth for the next five or ten years at least.

Forbes: Especially with so many big names coming off patent.

Mancini: Exactly. That number does decrease once you get 2 or 3 years away, but in the near term that should be a pretty good tailwind.

This one, again, using that same conservative 3% grow rate on free cash flows gives us a fair value at about $46 per share. It’s currently trading at $41 per share. That gives us that 10-15% cushion, or so, that we like to see with any stock.

Forbes: Very good.

Mancini: In addition, there are two well-known tech companies I wanted to comment on briefly. One is Apple (NASDAQ:AAPL). Everybody talks about Apple and a lot of our clients want to know our opinion on it. Obviously everyone is aware of the company and what they do – great products and great services. We’ve recently sold Apple at the $680/$690 level for most of our clients, which was our sell target at the time.

However, now it has come down about 20% off the highs below the $600 level, we would be active re-buyers of the security. This stock yields 1.7%, and has great products, great services. It’s really transforming a lot of the technology landscape as a whole. The valuation isn’t bad at all and there is a lot of cash on hand. We’re a little more aggressive in the growth rates with Apple. As opposed to the 2% or 3% we use for the previous two companies, over the next 5 years we’re assuming 11% growth in free cash flows. The 5 years after that, we’re looking at 5% growth. And then we’re assuming it’ll drop down to 2% or 3% thereafter and roughly match GDP.

Forbes: Who knows what they’ll come up with between now and then.

Mancini: That’s exactly right. It takes a lot for our firm to expect 11% growth rates for a period of time. But it’s all in perspective. Over the past 5 years, they grew at 100%. Obviously we’re predicting a pretty steep decline in growth, but still at a relatively high level.

Forbes: Not all bad.

Mancini: Lastly, there’s Intel (NASDAQ:INTC). We’re watching Intel currently, but haven’t bought it yet for our clients. It is down 25% over the past 6 months, and now it’s within a couple percent of where we would be active buyers. This company is obviously very tied to PCs, which is a negative but they really haven’t touched the mobile arena to any great degree yet. We think they will. That should really provide solid growth going forward.

In addition, PCs aren’t disappearing. The growth in the segment might go slightly negative to near zero, but they should still make great cash flows off of the PC Then you add the mobile growth on top of it. We view fair value at about $25 or so. It’s currently trading at $21That’s the 10%-15% discount to fair value that we like to see. In addition the stock yields north of 4%.

Forbes: Well that’s an interesting set of companies and an interesting method of making your selections.

Mancini: It takes a lot for our firm to buy individual stocks. There’s extra risk involved, so we put high hurdles in there. We’re quite conservative in that regard. But we find, more often than not, that if you stick to a disciplined approach like this, it really adds value to client portfolios while not increasing risk.

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